DISCLAIMER: THE FOLLOWING "Cost of Freedom Recap" CONTAINS STRONG OPINIONS WHICH ARE NOT A REFLECTION OF THE OPINIONS OF FOX NEWS AND SHOULD NOT BE RELIED UPON AS INVESTMENT ADVICE WHEN MAKING PERSONAL INVESTMENT DECISIONS. IT IS FOX NEWS' POLICY THAT CONTRIBUTORS DISCLOSE POSITIONS THEY HOLD IN STOCKS THEY DISCUSS, THOUGH POSITIONS MAY CHANGE. READERS OF "Cost of Freedom Recap" MUST TAKE RESPONSIBILITY FOR THEIR OWN INVESTMENT DECISIONS.
Bulls & Bears
Brenda was joined by: Gary B. Smith, RealMoney.com columnist; Pat Dorsey, director of stock research at Morningstar.com; Tobin Smith, founder and chairman of ChangeWave Research; Scott Bleier, president of HybridInvestors.com; and John “Bradshaw” Layfield, WWE Superstar & author of Have More Money Now.
Cheers were heard on Wall Street last week when the Dow finally punched through that magic 10,000 mark. Then, we had a big finish to the week when it closed above 10K for two straight days - the first time since May 2002. What happens now?
Bradshaw said the market is fairly valued right now and that investors are going to see the market go up as earnings go up. If earnings are up 10%, the market will hit 11,000 and more likely 11,500 by the end of 2004.
Tobin agreed with Bradshaw. He said the markets are going to do better than people think and that is what will be the surprise. He thinks all the mutual fund selling right now is a good thing. He added that there has been a hidden part of the market where the stocks under $10 are up 67% this year. The small cap stocks have been the leaders and he thinks those are the ones that are going to continue to be the leaders because of earnings growth.
Gary B. charted the Dow. He said it broke 10K, but he didn't’t ever think that would be the real battle. The hard part will be clearing a huge downtrend line, which he thinks is unlikely. He doesn't’t think we will reach the 11,000 mark and that the Dow only has a couple hundred more points on the upside. With all the talk of earnings growth, Gary added that he doesn't’t think the market has a correlation with earnings growth.
Scott said investors are buying stocks on a sign of weakness. He said buy the dip in some of the small cap names because these will be the market leaders again. He agreed with Gary B. and thinks it is going to be very tough getting through the low 10,000’s. Scott added that the pace of the market would slow down after this tremendous rally.
Pat said he thinks Bradshaw is right and the market is going to be fairly valued right now and everything will be moving in line with earnings growth. He thinks we move up modestly over the next year.
Gary B. and Pat each picked a stock they think will be the best Dow performer in the coming year and help the blue chips shatter 11,000.
Gary B. chose J.P. Morgan (JPM). He said J.P. Morgan's chart shows it has paused after a huge run up, but the next step is a burst up. He said look for J.P. Morgan to hit $50 next year. (J.P. Morgan closed on Friday at $35.09.) Pat said he sold his shares of J.P. Morgan about a month ago. It has had some good signs lately, but has hidden time bombs. Its credit costs are still high and he thinks the stock is out of gas.
Pat picked Merck (MRK). He said the stock is down for good reasons due to negative news about drug trials, but it’s poised for resurgence. He said look for a drug called Zetia, which he thinks is going to be a blockbuster for the company. He said Merck is a good bet at a good price. (Merck closed on Friday at $43.65.) Gary said people will keep writing this stock off, but he likes it. He thinks it will clear its current downtrend line and have a strong 2004.
Scott, Bradshaw and Tobin picked stocks that are set to make new all-time highs.
Tobin chose Magnum Hunter (MHR), an independent energy company. He said this stock is not only going to make a new high, it’s going to double. (Magnum Hunter closed on Friday at $8.78.) Bradshaw agreed with Toby that gas is a good place to be. He likes Magnum Hunter, but he prefers Anadarko Petroleum (APC). Scott said he has recommended Magnum Hunter for about six months and it hasn’t gone anywhere. He said it just came down a little and he thinks it will go up, but maybe not double as Toby said.
Bradshaw picked Harley-Davidson (HDI). He likes it because it’s cheap and after 100 years, it has found a new way to reinvent itself with the new V-Rod motorcycle. The luxury retail sales have gone up and people with money are going to buy toys. Tobin said this is a play on the baby boomers who would be the ones to buy this. If they spend on this, it’s a cheap stock. If they don’t it’s expensive. Scott said people have been betting against Harley-Davidson for a very long time and it hasn’t been the greatest investment. He said if the economy comes back and people have more discretionary income, then the stock could make a new high. (Harley-Davidson closed on Friday at $47.82.)
Scott chose Altiris (ATRS), which is a consulting company that manages technology spending. He said companies of all sizes need assistance with managing spending, inventory and control. This is a growth stock and is not cheap. He thinks it can go up 10 points from here. (Altiris closed on Friday at $33.43.) Tobin said it’s very expensive and he doesn’t think it is going anywhere. Bradshaw thinks this looks too much like the Internet bubble of 1999.
Gary B's Prediction
Dean and the Dems stand no chance in 2004; but it doesn’t help stocks
Dow skyrockets to 11,000 by April 15!
Like magic, MGIC Investment (MTG) will gain 40% in the next two years!
Kulicke & Soffa (KLIC): hard to say, easy to make money with!
Cavuto on Business
Neil Cavuto was joined by Gregg Hymowitz, founder of Entrust Capital; Jim Rogers, president of DID AL GORE JUST GUARANTEE A BULL MARKET FOR 2004?
Neil Cavuto: Did Al Gore just guarantee a bull market for 2004? Al Gore endorsed Howard Dean last week and while some say that could seal the deal for the former Vermont governor to win the nomination, others say Dean could never beat President Bush in a general election. And that could be good news for stocks. Ben Stein, what do you say?
Ben Stein: I don't think Howard Dean could possibly beat Bush. We need a tough guy and Dean is a big wussy from Vermont. Gephardt would be a lot better than Dean. If Bush wins again, I think defense is going to be strong. And I think the market will be stimulated by further tax cuts.
Gregg Hymowitz: The thinking that Wall Street likes Republicans better than Democrats is wrong. UCLA recently put out a study looking at the last 80 years. The fact of the matter is: during Democratic administrations, the average annual gain for the stock market is more than 11%. Republicans, on the other hand, have cost stock market returns of over 2%.
Jim Rogers: Ben, since everyone expects Bush to win again, aren't you afraid that maybe he won't and something could go wrong?
Ben Stein: I'm terribly worried about it but that's why I'm throwing all of myself into the campaign.
Jeff Birnbaum: We need to pull this back a bit. There has not been a single vote cast yet. But I do think that Bush will win ultimately. The economy is returning. And I agree with Ben that this is a time when security will be the top issue. He also brings with him a Republican congress so there will be a very strong pro-corporate tinge to Washington. And that has to be good. It will benefit energy stocks, drug companies and financial services companies.
Gregg Hymowitz: The problem is if you look at the polls, the number one issue is jobs. And we still have millions of jobs yet to be recovered. I think my guy -- Dick Gephardt -- will win and healthcare will be the big issue and so I'd be buying HCA Inc. (HCA). It's well run and it's cheap. I own it.
Jim Rogers: I don't have a clue who's going to win. Whoever wins, I would buy short-term European government bonds. An investment I own and one that your broker should be able to buy for you.
Ben Stein: I think the dollar will start rallying against these foreign currencies because there's going to be a rise in U.S. interest rates. If Bush wins, I would buy defense stocks and the Dow Diamonds (DIA), which I own and think are fairly priced.
Jim Rogers: But Ben, every time there's been an election the market has gone down the year after.
Gregg Hymowitz: Ben, I don't know how you can say the dollar will strengthen when you look at the deficit we're going to run out of in 2009 now of something like $17 trillion.
Ben Stein: The dollar tends to rise when interest rates rise. The dollar rose in the eighties even when Reagan was running a deficit.
More for Your Money: Dump Your Mutual Funds and Buy Stocks in 2004?
Neil Cavuto: Dump your mutual funds and buy individual stocks! Is that the best way to get more for your money next year?
Tom Dorsey: Individual investors are going to be far better off in individual stocks than mutual funds. The problem they have is not many individual investors are prepared to create a portfolio or manage a portfolio. So the next best thing for them is exchange traded funds (ETFs). More than 70% of mutual funds track the stocks in the S&P 500, so why not just buy an S&P index..
Neil Cavuto: And they generally have a hard time even matching that.
Tom Dorsey: Right.
Gregg Hymowitz: And much higher fees. The average ETF charges you basically 11 basis points. The average mutual fund charges you 150 basis points.
Jim Rogers: Tom, index investing beats mutual funds all the time.
Neil Cavuto: Not this year. Stock funds are up around 27%, while the S&P 500 index is up around 22%.
Ben Stein: That's very unusual and extremely rare. Over long periods of time, you cannot beat the ETFs.
Gregg Hymowitz: Mutual funds are past their prime. The interesting thing is there is a media bias in favor of mutual funds because mutual funds are ultimately the big advertisers. You will never see positive articles on hedge funds because hedge funds are legally not allowed to advertise. So they cannot support the Wall Street Journal and Fortune Magazine.
Ben Stein: Gregg, I worked for Barron's, for whom I have the utmost affection, and they would never favor anybody who was advertising with them.
Jim Rogers: The point is mutual funds have had it. The fees are very high. The performance is very very bad and ETFs will replace them. And the individual investor should not invest in individual stocks unless they take the time to study them and invest in things they know and understand.
Jeff Birnbaum: The average investor does not have the time to study these stocks the way you gentleman do.
Neil Cavuto: What fund or stocks would you recommend for 2004?
Jeff Birnbaum: I do not own any individual stocks because I write for Fortune magazine and that would be a conflict of interest. And so I'm an average Joe really and I'm worried as every mutual fund owner should be worried. But Fortune magazine has run a list of some very good mutual funds. Some of which are, Bridgeway Blue Chip 35 (BRLIX), Clipper (CFIMX), Dodge & Cox Stock (DODGX), Longleaf Partners (LLPFX), Tweedy Browne Global (TBGVX) and Vanguard Primecap (VPMCX).
Tom Dorsey: I think the Standard & Poor small cap equal weighted index (IJR) and the Rydex ETF Trust (RSP) is a course that's good for investors to take. And not all funds are bad. One with a good track record is the Dodge & Cox Stock fund (DODGX).
Gregg Hymowitz: One of the individual stocks we like and own is Pharmaceutical Product Development (PPDI). They do research for the pharmaceutical industry. They are at 12 times earnings and have a great management team.
Jim Rogers: I wouldn't buy funds or stocks right now. You should be in short-term bonds and other currencies.
Head to Head: Don't Reward Cowards!
Neil Cavuto: France, Germany and Russia tried to keep us from liberating Iraq! So why should they profit in the rebuilding of Iraq?
Susan, there's a disconnect for me with these countries who oppose liberating Iraq but who now want to profit with doing business in Iraq.
Susan Estrich: I was shocked Neil, because I expected a free market conservative like yourself would want the companies, we're not talking about the countries, but the companies who may have their headquarters in France or Canada do the job at the lowest possible cost. Why would you instead want to score ideological points?
Neil Cavuto: I'm thinking about people who shed blood in this conflict. We and other coalition countries made huge sacrifices and now other countries who did not make that sacrifice want to waltz into the country and say, 'We want in.'
Susan Estrich: We were trying to get them to waltz in the last time I checked. What are we going to do. Are we going to say, anybody who supports Howard Dean, you cannot have a contract?
Neil Cavuto: Do you know the great sacrifice our men and women have made to liberate this country? Then you're going to turn around to the very countries who opposed their efforts and say, 'You want some euros out of this? Have at it.'
Susan Estrich: If you're for free markets you're not going to let everyone come in and bid on these contracts?
Neil Cavuto: I'm making a basic argument here. Leave free markets out of it. There were countries who said it was wrong to liberate Iraq, but who now want in. I don't think so.
Susan Estrich: Do you want to give an international face to this recovery or not?
Neil Cavuto: No, not to the ones who opposed this from the very beginning.
Susan Estrich: So you don't want this to look like an international effort?
Neil Cavuto: Let me ask you, would you reward the French over an American company?
Susan Estrich: I would give the contract to the company who would do the best job at the lowest price because on this one, I'm a tax payer.
Neil Cavuto: I like to consider myself a loyalist to those who sacrificed the most and if that means I'm taking sides, then I'll take the United States side. End of story.
FOX on the Spots
Tom Dorsey: Ignore the negative press! Buy Boeing (BA)!
Ben Stein: Tom is right! Bet on Boeing (BA). It's a good company.
Jim Rogers: OH CANADA! Canadian stocks head north! That's the best place to make money in North America.
Jeff Birnbaum: Push to privatize Social Security helps financial stocks. President Bush will announce plan to partially privatize SS during his State of the Union address next month.
Gregg Hymowitz: President Bush will back down and let war critics, like France, bid on 'rebuilding Iraq' contracts.
Neil Cavuto: We're going to hear a lot more about companies beefing up their spending plans on technology. That is good for tech companies and good for the market!!
Forbes on Fox
Our panelists give you the scoop on all the inside business information before you hear it anywhere else in The Informer segment:
David Asman: Are Internet stocks starting to make a comeback? Bill, you've got a couple of "old school" Internet stocks, Sun Microsystems (SUNW) and Advanced Micro Devices (AMD). You think they're making a comeback?
Bill Baldwin, Editor: Well, I don’t think you should put 80% of your money into crazy Nasdaq-100 (QQQ) speculations. If you want to put 1% in and take a real long shot bet, buy these two stocks; Sun Microsystems and Advanced Micro Devices. They’re teaming up to make a cheap server that will compete with Intel (INTC) based servers. It’s a long shot, but if it works it will be great.
David Asman: OK, Quentin, what do you have for us?
Quentin Hardy, Silicon Valley Bureau Chief: Well, you know there’s a saying “when it comes to war, bet on the arms merchants,” and that’s what drove Cisco Systems (CSCO) to do so well during the Internet days. It drove 3Com (COMS) damn near out of business, but 3Com’s teamed up with a Chinese company, Huawei, that’s got PhD’s as far as the eye can see, and a cost basis that can really give Cisco a hard time. So, I think this might be a good play for 3Com.
David Asman: So forget what happened with Cisco. Mike, what do you think?
Mike Ozanian, Senior Editor: Well, I don’t like 3Com. I think they’ve got yesterday’s technology, the company’s losing a ton of money. I like Bill’s stocks because they’re really, really cheap and they’re making tomorrow’s technology. My own favorite is Altera (ALTR), which makes the chips, the brains behind computers. Their chips are programmable so that the customers get to make the chips to do whatever they want, which gives them a real advantage.
David Asman: Now is the stock cheap now?
Mike Ozanian: The stock’s at $22. It’ll be at $30 a year from now.
David Asman: Wow, what do you think of all these stocks put together, Lea?
Lea Goldman, Senior Reporter: You know, call me a nay-sayer, but tech stocks remind me of childbirth. How quickly we forget the pain. The NASDAQ listings, Altera’s a perfect example, are overpriced and due for a correction. I think a lot of these companies have enjoyed their run already.
David Asman: Let me put it back to Bill. Bill, I sold some SUNW at $120, I guess it split, so that’s about $60 at current prices. It’s now trading at what? $4 ½? That’s a heck of a drop.
Bill Baldwin: So you’re saying “don’t buy it cheap”?
David Asman: I’m saying that if it dropped that much, maybe it could drop to nothing. Maybe the company could go out of business.
Bill Baldwin: I totally concede that. This stock is either going to be a $20 stock in a couple of years or a $0 stock.
David Asman: All right, so double-or-nothing, Quentin.
Quentin Hardy: Yeah, it’s a flyer. And, you know, this deal with AMD could ease their biggest problem, which is the cost of making chips. If they can figure out a way of moving that cost over to AMD, they would be in better shape financially.
David Asman: Quentin, Mike wasn’t too up on 3Com, he didn’t think that was going to be too good. What do you think about his pick of Altera?
Quentin Hardy: Well, Altera’s a good company. I think 3Com works because of this deal with Huawei. I think getting these Chinese guys to sell their equipment into their country could get them a lot of cash.
David Asman: And Lea, finally, is there any stock in the NASDAQ that interests you, any of these dot.com stocks?
Lea Goldman: You know, I wouldn’t even call these dot.com stocks. These chip stocks are ultra competitive, the margins are super slim, and they’re priced ridiculously.
Makers & Breakers
• Tupperware (TUP)
Wendell Perkins, Chief Investment Officer at Johnson Asset Management: MAKER
Tupperware management has made several important miscues over the past year, to their distribution system. They are correcting that. We think earnings growth next year could be as high as 30%. They’re paying down debt on the balance sheet. They’ve got a very attractive 5.8% dividend yield that you get from this. We think that the stock could run as high as 20%, as high as $20 a share [Friday’s close for (TUP): $15.57]. It’s a great total return.
Pete Newcomb, Senior Editor: BREAKER
Well, it was just revealed that the Queen of England uses Tupperware on a daily basis. So, they’ve got this wonderful, free endorsement by the Queen. However, I just don’t like the company that much. It relies too much on this multi-level marketing.
Jim Michaels, Editorial Vice President: BREAKER
All the vital signs in this company are weakening. Sales, profit margins, cash flow; all the vital indicators have been going downhill for five years. I’d stay away.
Wendell Perkins: Well, when we look at this company, what we see is a reduction in debt and a change in direction in terms of distribution, which will be very important to turn those trends around. And at this point you can buy the stock at about 14 times earnings, and again there’s this wonderful dividend yield which we believe to be very secure.
• Darden Restaurants (DRI).
Wendell Perkins: MAKER
Again, this is a stock that has been under pressure as well because of problems within the Red Lobster chain particularly – weak same-store sales. They’re having some challenges getting people in the door, but that does change. What we’re seeing is management doubling their efforts to change the opinion of diners of Red Lobster. Great demographic trends going forward, more and more are eating out. This is a stock that trades at 13 times earnings. Great free cash flow generation, we think the stock can go up to $29 [Friday’s close for (DRI): $19.58]
Jim Michaels: MAKER
Here’s why I like the stock: it’s pasta and fish. These are very politically correct foods. The cultural lawyers won’t get after them like the do with McDonald’s (MCD). But seriously, they do have a problem they’ve saturated the market with Red Lobster and Olive Garden. They’ve got to come up with new concepts, but what I like is that they are coming up with new concepts. I think they can expand greatly. I like the stock.
Pete Newcomb: BREAKER
You know, I’ve never eaten at any of these restaurants. I know they’re wildly popular. I think the economy is coming back, people will be dining out more, and I think they’ll take advantage of that. I like it.
Stock Smarts: Bulletproof Market?
War. Terrorism. Wall Street scandals. So what? This market seems to shake off any and all bad news. Since hitting a post-bubble low on October 9, 2002, the Dow has roared back, gaining 38% (as of the close on 12-12-03).
Is this a bulletproof market?
Dagen McDowell of FOX Business News says this market is unstoppable. We are going to see an economy in 2004 that will grow at the fastest rate in 20 years, consumers will continue to spend, business will pickup spending and profits will grow - and that is a massive suit of body armor for the market. January will be a good month for stocks. If there is a tech sell off (something that Gary Kaltbaum mentions), the money will rotate into other sectors. She still likes the broader markets.
Gary Kaltbaum of Kaltbaum & Associates responded by saying you better have “one good Kevlar vest for next year”. He thinks that tech stocks are done, and come January, we will see the first 10-20% drop in the Nasdaq since last march, and it will be painful. The NYSE still looks o.k. He still likes the commodity plays, and like stocks in the oil services sector. He would stay defensive right now.
Wayne Rogers of Wayne Rogers & Co. does think that some tech stocks still have room to grow, but also notes that some tech stocks are way overpriced. He returned to his theme of saying that we have a market of specific stocks, not just a “stock market”; you’ve got to pick the right ones. The market is not bulletproof, as higher interest rates and more terrorism could hurt stocks. But the economy is going to be good. Foreign stocks are selling at very low multiples - he mentions PetroChina (PTR) and PetroKazakhstan (PKZ) - both stocks he owns. You have to look overseas. Wayne still likes the master limited partnerships, mentioning Pengrowth Energy (PGH), another stock he owns.
Jonathan Hoenig of Capitalistpig Asset Management isn’t looking at the S&P 500 or the Nasdaq. He is still looking overseas stocks, commodity plays and REITs. The emerging markets have done well along with the U.S. market. He says the best thing to do is to go away from the herd.
Jonas Max Ferris of Maxfunds.com all stocks, both U.S. and foreign, are correlated. Foreign stocks will come down quickly as U.S. stocks if bad things happen. He is still shorting the Nasdaq, saying when the bears are hard to come by, that’s when the market is the most vulnerable.
What are the stocks that can take a licking and keep on making money? The crew came up with some potential winners.
Target Price: $45
Friday's Close (12-12-03): $36.30
At this point, insiders are buying up a ton of the stock, and he likes that as a signal to buy – and women love the purses. Jonathan says this is a strong stock, but not his favorite sector right now. He likes Phillips-Van Heusen (PVH) as a better play in the sector (he does not own PVH). Wayne says that any time you are in a fashion industry, you are susceptible to bumps, and that scares him about Coach, although he notes the stock has had a terrific run and is a well-run company.
Veolia Environnement (VE)
Target Price: $35
Friday's Close (12-12-03): $24.30
Jonathan is looking at international utilities right now, and one stock he likes is this French water company (he owns this stock). Gary is concerned about it’s low liquidity. Wayne thinks that all the water companies are a fair play right now, but he doesn’t like this one because of the low liquidity.
Target Price: $49
Friday's Close (12-12-03): $42.00
This is a wonderfully run company (he owns the stock). It is a publicly held “deals” business. Jonathan likes the stock, and Gary also thinks this is a fine play – a good, strong stock.
Stock of The Week
Gary K. says Viacom (VIA) is the stock to buy Monday. Jonas says now way; Wayne says they are both right!
Gary says that when you are looking for a strong, quick move, you have to look to where the big money is flowing. And right now he sees money flowing into media stocks. He thinks Viacom is a good trade right now. Jonas says the premise of using volume to determine how a stock will do just seems strange to him (nothing the high volume in the dot-com stocks in the 1990s). What about the real business, Jonas wonders. Wayne owns Viacom and thinks it is still a good long-term holding. He’s not sure how much of a run it will have this week, outside of a couple of points. He does think that looking at volume is important.
We’ll post the week’s return here next Saturday.
Stock of The Week (Last Week)
Gary said General Motors (GM) was the stock to own last week.
General Motors gained 8.1% last week.
Cashin’ In Challenge
To find out who’s ahead in the $10,000 “Cashin’ In Challenge”, check out the website at: www.foxnews.comchallenge
Wayne, Jonathan and Dagen answered some of your questions.
Question #1: “I would like to get your views on Marvel Enterprises (MVL)?”
Jonathan says this was a beat-up, dead company for a long time, and it has had a great rally. But it just isn’t a stock where Jonathan would put new money. Dagen says there was heavy insider selling of this stock earlier in the year – not a good sign.
Question #2: “I bought Best Buy (BBY) when Wayne recommended it in November. It’s down since then. What does he think about it now?”
Wayne still likes Best Buy, but you should use stop loss orders at a level where you want to be taken out of the stock. But he still thinks the stock will do well this holiday season. Dagen says it should do well in the Christmas season, and the tax rebates coming in the spring should also help this stock, as consumers will continue to shop.
Question #3: “I’m in the travel business in Las Vegas and business has been really great. What do you think about American Express (AXP)?”
Dagen thinks this company has a great brand name, and the stock is reasonably priced. Jonathan says that financial services are doing well right now, but he likes the foreign banks better. Wayne also likes the banks, but is more keyed in on the regional banks.
Question #4: “What do you think of Wheaton River Minerals?”
Jonathan says now is the time for commodities and hard assets, and these stocks are very strong. Wayne likes this stock.